Division of property under the Property (Relationships) Act 1976
In the event of separation or death, the Property (Relationships) Act 1976 will apply to the division of property. Generally speaking, property classified as relationship property will be split equally between the parties.
For example, Sam and Emily have been in a relationship for 4 years and are getting married in 8 months. Sam owns a house and has a child from a previous relationship. Sam and Emily will move into Sam’s house after the wedding. Emily has a $50,000 student loan and $20,000 finance on her car. Sam and Emily separate after 1 year of marriage. Under the Property (Relationships) Act, Sam’s house, Emily’s $50,000 student loan and $20,000 finance on her car will be split equally between them. Sam is unhappy about this as he wanted to provide financial security for his child from a previous relationship and has ended up with half of Emily’s debt. A prenuptial agreement would have been beneficial for Sam.
What is a prenuptial agreement?
A prenuptial agreement is a written agreement that lists assets that each party wants to retain in the event of separation. Section 21 of the Property (Relationships) Act 1976 states that spouses or partners may contract out of the Act and make their own private agreement as to the division of their property. Prenuptial agreements are legally binding if they are in writing and signed by both parties once they have received independent legal advice.
What are the benefits?
Prenuptial agreements have a number of benefits including:
- Guaranteeing financial security for children from a previous relationship;
- Protecting spouses from each other’s debt;
- Protecting significant assets owned before the relationship;
- Protecting a family heirloom or substantial inheritance;
- Making the separation process easier – emotionally and financially;
- Providing security during and after marriage;
- Maintaining the expectations of the spouses; and
- Can help prove intention if there is a dispute over a will.
Five key points
- Take your time – Do not rush into a prenuptial agreement. Allow 6 months to a year before your wedding to draft, review and finalise the agreement. The danger of last minute agreements is that they are harder to enforce if challenged in court.
- Seek independent legal advice – Seeing separate lawyers will ensure that your own rights and interests are protected and you understand the meaning, effect and risks of the agreement. The danger of not seeking independent legal advice is that the agreement could be deemed void if challenged in court.
- Specifically identify assets – List assets in detail and exactly what happens to them to avoid doubt. This will also ensure that there is no question as to whether their existence was disclosed.
- Full disclosure – Disclose all your assets and liabilities even if they are only of sentimental value. The danger of not disclosing all your assets and liabilities is that the agreement can be set aside.
- It is important to update your agreement – A prenuptial agreement is very much like a will and needs to be updated regularly. The agreement may no longer meet your needs or not contain new significant assets that you now own. It is particularly important to update it when you have children.
Prenuptial agreements are particularly beneficial for parties wanting to protect significant assets they owned prior to their relationship or to provide financial security to children from a previous relationship. The five key points will ensure you have a sound prenuptial agreement so you can feel secure for the future.
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